Car Buying Traps to Watch For

If you are in the market to buy a new or used car, be aware that auto dealerships can easily have you overpay for your vehicle if you're not careful. Whether through an inflated sticker price, unnecessary additional features, a high annual percentage rate (APR) or a lower than market value assessment of the trade-in vehicle, car dealerships will use different tricks to ensure a higher profit for themselves. These tricks become even worse when dealerships offer car loans to bad credit buyers. Therefore, when shopping for a car, the best way to avoid these car buying traps is to first do some research. Here are three major traps that are often used by car salespeople and dealerships:

1. Inflated car sticker price tag

Car dealerships will raise the car's sticker price tag as much as possible in order to maximize profits. If you walk into a showroom without knowing the MSRP and dealer costs of the exact cars you wish to buy, then you will likely end up losing a considerable amount of money. Also, you may miss out on manufacturer rebate and incentives programs that further lower the final cost of the car. Before you go to the car dealership, look online for current car prices and deals. Edmunds, AutoTrader and other Web sites offer price, rebate and car review information. Compare car prices between several area dealers before you go shopping.

Having your own financing puts you in control of the negotiations, since the dealership cannot use it as a bargaining chip to raise your car price and/or APR

Once you arrive at the dealership, bring a folder of actual car price quotes. Use these real price quotes if your salesperson shows you car models with much higher sticker price tags. If the salesperson sees that you've done your homework ahead of time, he or she will be less likely to trick you into buying an overpriced car.

Another way that car dealerships make a profit from their cars is by selling vehicle upgrades such as window tints, sunroofs and leather seating. Unless you are looking for a car with these features, do not agree to pay any extra money. Also, if you have bad credit, some dealers will argue that they cannot sell the car without additional warranties or insurance. This is false, and clearly a trap to make you pay more money for your car.

2. High finance rates and APR

Car dealerships can trick car buyers into paying much higher finance rates than necessary, especially if the dealerships are trying to obtain car loans for bad credit consumers. One way that this happens is when the dealership initially obtains the buyer's loan APR. If, for example, you are found to qualify for a 7 percent APR, the dealership could offer you an 11 percent APR instead, pocketing the extra 4 percent as profit. The other way this happens is when the dealership predicts that you will probably qualify for a loan at a given APR and then sells you the car. After a few weeks, the dealership calls you back and states that a loan was obtained, but at a higher than predicted APR.

To prevent such problems, you should first try to obtain your own financing. Even for bad credit applicants, there are online resources that can obtain auto financing for people with various credit ratings. As long as your credit score is above 525 and your bankruptcies have been discharged, you have a good chance of obtaining credit. Having your own financing puts you in control of the price and incentives negotiations when buying a car, since the dealership cannot use it as a bargaining chip to raise your car price and/or APR.

If you are unable to obtain your own financing, then you should at least obtain your own credit report and score. This will cost you about $10-$15, but it will be a priceless asset during your loan negotiations with the car dealer. Knowing your credit score will allow you to know the APR for which you qualify, lessening the chances of the dealer raising your rate and pocketing the difference.

3. Low trade-in car value

Many dealerships make their profit by paying the lowest amount possible for the trade-in vehicle. If you have a trade-in car, be sure to obtain its Kelley Blue Book value first before going to the car showroom. This way, you'll be better prepared and know just how much money the dealer should be offering for your car. Also, try not to mention that you have a car to trade in until negotiations for the new car are finished. Many dealerships factor in the trade-in car value when estimating their profits and may not give you the best new car price as a result.

For the best absolute value for your current car, consider selling it privately. It is doubtful that any dealership will pay you more for your car than a private individual, since the dealership must then pay additional money to refurbish and resell your vehicle. A private buyer will usually not have those concerns.

Hally Z.

---

Read more about Auto Loans

Get help with Auto Loans